I am a Cain cash machine.
I wrote a Daily Beast piece Monday detailing how Herman Cain is still getting campaign contributions from the longtime CEO of a Missouri energy firm who reaped multimillion-dollar bonuses from a board compensation committee Cain chaired.
Cain’s committee approved $10.3 million in executive excess for Aquila Energy’s Richard Green in February 2002, at the very moment that the nosediving company was preparing to lay off 500 of its workers. Green gave the legal maximum, $2500, to Cain’s presidential campaign this September, part of $47,500 in contributions since 2003 that donors tied to Aquila and another Kansas City company associated with Aquila have given to Cain committees. Beset by the Enron-like difficulties enumerated in my story, Green, who declined to talk to The Daily Beast, engineered Aquila’s sale in 2008, with shareholders forced to settle for about 10 percent of the company’s peak value in 2001.
On Tuesday after my story appeared, I heard from Richard Green’s brother Robert, who was Aquila’s president and COO until January 2002, when he briefly replaced Richard as CEO, only to leave nine months later with the second bonus approved for him by Cain’s committee that year. Robert Green, who was in turn replaced by his back-in-the-saddle brother on Oct. 1, 2002, collected $17 million in the double bonuses of 2002—$9.4 million in February and $7.6 million in October—and he wants all of us to know that he thinks the chair of the committee that approved that windfall “would make a very good president” and “is a very smart guy.” When I pointed out that Cain’s filings list Richard as a recent donor but not him, Robert said, “I just haven’t contributed yet, but I support Herman.”
“You’ll see my name pretty soon” on Cain’s donor list, he promised, a pat on Cain’s back that might cause whiplash. I expect a commission.
Robert said there was “no way Herman would rubberstamp stuff,” a term used in my story by another Missouri energy executive to describe the Aquila board’s actions. Green said that when he was named COO in 1995–96, Cain insisted that he come to Omaha for an interview, hardly, said Robert, a requirement that a supine board director would make. He also contended that while some people might regard his bonuses as high, Cain’s committee awarded him “less than I was contractually entitled to,” suggesting that Cain should be president because he refused to include a power plant all his own for Robert in the severance deal.
Even more perplexing, Green argued that his instant demise as CEO had nothing to do with performance, though Aquila’s SEC filing for the first three quarters of 2002, the only quarters in which Robert ever held the top post, indicated a record loss of $1.09 billion. That was up to the day before he stepped down. Green insists his departure was purely “a cost-saving” measure, and that Richard, who was serving as chair of the board at the time, took back his old job without any pay increase for wearing both hats again. How a $7.6 million severance from a company in free fall is a cost-saving move is one of those occurrences that can only be understood by inhaling in a corporate boardroom. It is worth noting that even as Robert spoke to me, he was enjoying the $300,000-a-year lifelong pension that was sanctioned by Cain’s board as part of the company’s otherwise largely disastrous sale terms in 2008.
What Green really wanted to talk about, though, was how he, Cain, and the rest of Aquila’s management were not really responsible for the collapse of the company and its related entity, Utilicorp United, which changed its name to Aquila, yet, at some points, maintained a simulated separate existence. He did this without directly disputing any of the facts laid out in my story, including the contention that the company was engaged in the same speculative frenzy that consumed Enron and other energy traders, a finding supported by government penalties, lawsuit settlements, and excellent Kansas City reporting.
Green said the company’s “real problems” didn’t begin until April 2002, when the rating agencies put Aquila/Utilicorp debt on credit watch. So, though court records in a racial discrimination lawsuit reveal that the company’s human-resources department began planning for large-scale layoffs in February, Aquila “had no problems at the time the first bonus payments” were approved by Cain’s committee that month. Adding that the rating agencies recalibrated their standards for energy firms in June as well, Green contended that “if the agencies had not dramatically altered the rules of the game,” Aquila/Utilicorp would have weathered the Enron storm fine.
“Neither I, nor the board, nor anyone foresaw what the rating agencies did,” said Green, explaining why the initial round of bonuses was awarded. When I pointed out that I quoted Richard accepting responsibility and apologizing at a 2007 shareholders meeting for management’s role in the downfall and asked if Robert disagreed with his brother, he replied, “Of course, we bear responsibility. It occurred on our watch. The board missed it. We missed it. I take full responsibility for missing it. We did not anticipate what the credit agencies would do. I don’t know anybody who didn’t miss it.” He added that “the entire industry missed it.”
There are a number of problems with Green’s scenario, starting with the fact that Fitch Ratings placed Utilicorp debt on negative credit watch on Dec. 21, 2001 and Utilicorp reported millions in losses on Feb. 7, 2002, simultaneous with the award of the bonuses. Fitch downgraded the company’s bonds on Feb. 27, the same day that the Chubb Group of Insurance Companies demanded collateral to protect $570 million in Aquila surety bonds. Utilicorp and Aquila were so joined at the hip that Utilicorp, on whose board Cain and the Greens also sat, was making loans to Aquila by the end of 2001. As early as November 2001, Richard Green and CFO Dan Streek were telling analysts in an SEC-reported presentation that Aquila/Utilicorp were already “shut off on the equity side” of the credit markets because of “concerns” that were a byproduct of Enron.
In fact, Aquila’s SEC filings during this period flatly acknowledged that “our commitments under long-term gas delivery contracts will generate significant losses and negative cash flow,” as well as admitting that “we are exposed to market risk on open positions on trading contracts, which may cause us to realize gains or losses.” It’s hard to blame that on rating agencies. In fact, the agencies’ downgrades were probably a response to those risks and losses, which Aquila then said were “primarily attributable to lower commodity prices and volatility.”
I’m not going to repeat the mountain of evidence in my original piece of the mismanagement that led to the demise of these companies, but the $26.5 million penalty Aquila paid to settle with one federal agency that accused it of “nonexistent trades,” as well as three criminal convictions of trading-desk directors, and other punishing settlements certainly suggest that there was more wrong here than panicked rating agencies.
For his part, Herman Cain made us all smile once again Tuesday night, just hours after I got off the phone with Robert Green. During the CNN debate, he called Wolf Blitzer “Blitz.” It was an odd blunder for a man who’s spent a lifetime in the boardroom of wolves.
Research assistance was provided by Emily Atkin, Matthew DeLuca, Kelly Knaub, Fausto Giovanny Pinto, and Andy Ross.